What Is Revival Or Recovery In The Business Cycle?


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Nouman Umar answered
The economic conditions which we have described in depression phase do not remain as such for ever. After sometime revival or recovery sets in under the influence of a variety of factors. The revival phase develops when the accumulated stock of commodities with the businessmen are exhausted. The cost under the impact prolonged depression begins to fall. The price which have reached its lowest level stop falling further.

There is then complete harmony between costs and price relationship. When profits begin to reappear, the businessmen are induced to invest their hoarded money in some enterprise. In order to steal a march over other industrialists, they start repairs, renewal and replacements of their capital equipments and stocks. The capital goods industries resume activities. There is gradual re-employment of labour.

The money incomes begin to increase and the effective demand is revived. The government also tries to break the spell of depression by starting construction or expanding some public works with a view to give more employment. The commercial banks which have accumulated large reserve offer credit on favourable terms. The marginal efficiency of capital begins to rise and investment opportunities brighten up. The consumers start buying commodities to avoid the rise. Due to increase in demand for commodities, investment in various industries is stimulated and thus the revival takes place.

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